The second round of bidding for the Life business is widely thought to have drawn just one bid of over €1bn as suitors shy away from major deals amid the eurozone debt crisis. "Three parties have put in proposals but they are all qualified," according to one source.

Last March it was thought that the Irish Life unit could be worth as much as €1.5bn. The embedded value -- or estimated value of its life policies -- was close to €1.6bn at the end of June.

"The board will consider the offers next week. They might go back to them. But they are proper offers. There is no sense of them going 'Oh no' when they opened the envelope," according to one source.

The Great West Life Assurance company, which owns Canada Life in Ireland is thought to be slugging it out with a private equity consortium made up of JC Flowers and Leon Black's Apollo Group. Great West is headed up by Armagh-born Allen Loney and is seen as a favoured option by insiders.

Earlier this year, the Sunday Independent revealed that former Bank of Ireland boss Brian Goggin was working with Apollo to scout out potential deals in Ireland. Private equity firm CVC is still monitoring the situation.

It is believed that other bidders including Delphi Financial and Unum have dropped out of the bidding process. Deutsche Bank is handling the auction.

Following the March stress tests, it emerged that Irish Life & Permanent needed €3.8bn to meet regulatory capital requirements. The government ploughed in €2.8bn, leaving a shortfall of €1bn which was to be filled by the sale of the Irish Life unit.

Initially it was expected that the sales process could be completed by last summer, although a deadline of October for the start of the auction was set by the Department of Finance.

The drastic slowdown in Europe's economy and fears of balance-sheet black holes have shattered values in the insurance sector with growth forecasts for the industry slumping.

Since July, the share prices of Europe's largest insurers have been hammered, with French giant Axa and Dutch firm Aegon both down close to 40 per cent, German Insurer Allianz and ING tumbled 30 per cent, with Prudential and Zurich both down around 20 per cent in a matter of weeks.

British insurer Aviva has tanked 26 per cent in the sell off. The problems facing the insurance sector -- especially those operating in Ireland -- were highlighted by last week's devastating news that Aviva was to slash close to 1,000 jobs across its Irish operations in a bid to cut costs.

"I can tell you that the Troika are happy with the progress," Finance Minister said last week when questioned about the Irish Life sale. Department insiders have declined to comment on whether the sale would go ahead at lower than expected prices.

"You'd be giving an advantage to the bidders if you said anything about that," according to one source.

It has also emerged that Irish Life is unlikely to be spun off onto the stock market if the auction process fails to deliver the required result. Sources close to the sales process indicated that the option was no longer being actively pursued.